By Dumping Craftsman, Sears Could Climb Toward Department Store Status

By giving Ace Hardware the right to sell Craftsman Tools, as related in this blog yesterday, Eddie Lampert, Sears Holding (SHLD) chairman, and chairman of the ESL hedge fund that owns the retailer, looks like he is cashing in assets. In the short term, the Craftsman deal is likely to dilute the value of the Sears brand because a bunch of people will stop coming to the store when they can get Craftsman products elsewhere.

Or it could be that Lampert has a bigger, longer-term idea in mind: Turning Sears into an honest-to-goodness department store.

Consider Lampert's dual responsibilities. The folks invested in his hedge fund can't count on making big bucks out of Sears stores when consumers and the commercial real estate market are both hurting. But Craftsman is a well-priced, popular brand at a time when more folks are fixing their own cars and houses. There is potential for an immediate value to Sears Holding, versus Sears the borderline department store chain. When the real estate market recovers, with the brand assets available elsewhere, selling attractive properties would not come with the opportunity cost of lost Craftsman revenues, or at least not to the same degree.

At the same time, Sears has launched some interesting retail initiatives on line to improve its retail performance at namesake stores and Kmart, and it has delved deeper into electronics, despite deflation and fierce competition in that quarter. Just a couple of days ago, Sears said that it and its Blue Electronics Crew â€" the company's version of the Best Buy (BBY) Geek Squad â€" would offer Samsung 3-D LED televisions.

Sears will offer two variations, a 46-inch for $2,599.99 and a 55-inch for $3,299.99. Now clearly, most retailers would rather sell a $3,299.99 TV than a power tool. Sears Canada has experimented with upscale electronics for some time. It also operates a lot of stores as full-line department stores, unlike its tool-tossing American cousin, which is a mid-tier operation, one that is a little more mass market and self service than traditional department stores. These days, with more electronics and an apparel business pumped up by Lands' End, the Canadian operating model may be looking attractive from the American side of the Great Lakes.

So, maybe Lampert's intentions are to de-emphasize Craftsman tools and Kenmore appliances and make Sears into something more like a classic department store. He'll have to build on Sears' Lands' End apparel business significantly to make such a move possible. Still, Lampert may see opportunity in the vulnerability of Macy's and regional department store chains such as Dillard's.

Of course, he may only want to keep everyone occupied until the economy improves, and he can start selling property. Yet by operating a mix of mid-tier and department stores â€" as in the Canadian model â€" while selling off select outlets that sit on appreciating real estate, Lampert just might be able to have the best of all worlds.

That is, once he starts selling Kenmore through Costco.